Mozambique’s government is pushing forward with Eni’s 3.4 mtpa FLNG project in a determined move to shake off perceptions the country’s debt crisis will stall its LNG developments.
The Council of Ministers approved the sales-and-purchase agreement (SPA) for the offtake of LNG from Eni’s Coral FLNG last week. It also gave Eni the right to start negotiations with lead bidders for the project’s key EPC contracts, Interfax Natural Gas Daily has learned.
In its 20th ordinary session on 14 June, Mozambique’s Council of Ministers approved “the award of contracts for the provision of South Coral Project Services FLNG in Area 4 of the Rovuma Basin and analysis of the Agreement for Purchase and Sale of LNG Project FLNG Coral South”.
But while the government has sanctioned the SPA with BP for the full 3.4 mtpa of offtake from Coral, the agreement has not yet been signed by the other Area 4 partners.
The four shareholders – project operator Eni, China National Petroleum Corp., Kogas and Galp Energia – first need to get the contract authorised by their respective boards. This process is ongoing, a source close to the deal told Interfax Natural Gas Daily.
LNG will be sold to BP under a free-on-board, oil-linked contract with a slope of around 11.5% – although some sources have suggested the number is slightly lower.
There is also an element of spot market exposure in the contract, which has raised concern among some of the potential financers.
Eni to start bidder talks
Contrary to the 14 June statement, the Council of Ministers did not approve the award of contracts for the FLNG project, but instead it afforded Eni – the operator of Offshore Area 4 – the right to start final negotiations with the lead bidders for the four key project tenders, the source told Interfax Natural Gas Daily.
Eni will initiate EPC contract discussions with a consortium of France’s Technip, Japan’s JGC Corp. and South Korea’s Samsung Heavy Industries for the FLNG facility. It will negotiate with Aker Solutions for the logistical support equipment, with GE for the submarine equipment, and with Eni’s subsidiary Saipem for the drilling.
The partners are hoping to lower the current bid prices to reduce the overall capex for the estimated $7-9 billion project, which may not be economic if oil prices stay at around $50 per barrel.
Mozambican state oil company ENH is now pushing to finalise the financing for its 10% stake in the project by 30 June – although sources say this timing is optimistic.
While the principle has been agreed that the four other partners will carry the state-owned oil company for the initial years of the project – with the loan repaid from ENH’s share of future profits from LNG sales – the final terms are still under negotiation because they will have a big impact on Coral’s final economics.
FID in September
Eni is pushing for an FID on Coral by September this year. However, while it is possible all the necessary documents and approvals could be in place by this deadline, whether the company takes an FID will depend on whether it can firm up the project’s economics.
Eni is still looking to farm down part of its 50% stake in Area 4, and Interfax Natural Gas Daily understands this is a prerequisite for it to close the financing.
The Italian oil major had been in advanced negotiations with ExxonMobil in March to buy into the block, with a deal expected to be announced by the end of April.
However, negotiations appear to have slowed following revelations of an additional $1.2 billion in secret, state-guaranteed borrowing that has left Mozambique on the brink of bankruptcy.
Despite assurances from Omar Mitha, the head of ENH, that the debt crisis will not affect the financing of Mozambique’s LNG plans, progress on Anadarko’s 12 mtpa plant also appears to have stalled.
Anadarko is now trying to use this to its advantage, an industry source told Interfax Natural Gas Daily. The strategy of Mitch Ingram, the company’s new head of LNG, is to move the project forward slowly but get it right, the source added.
Anadarko has appointed a new country manager to lead the development of its 12 mtpa onshore LNG plant. John Bretz, the company’s vice president of marketing in Texas, takes over from John Peffer, who has led the United States-based independent’s operations in Mozambique since 2007. Peffer has now retired from the company.
Ingram – the former managing director of BG Group’s Queensland Curtis LNG project in Australia – has gone on a hiring spree to bolster Anadarko’s LNG credentials. The company is bringing several former BG LNG personnel on board who are leaving the company following its merger with Shell.
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